The Korean debt market is enjoying a bumper year as interest rates hover at historic low levels, but the frenzied appetite has been restricted to big corporate names, with smaller companies turning to banks for funding amid the bearish stock market.

New corporate debt offering excluding financial issuers reached 31.9 trillion won ($27 billion) in the first seven months of the year, up 36.4 percent from the same period a year earlier, according to the Bank of Korea and the Financial Supervisory Service on Monday.

The issues were entirely by big corporate names capitalizing on the low interest rate environment. Bond yields have been hitting new historic lows in recent months on expectations of monetary easing. The Bank of Korea lowered the policy rate to 1.50 percent in July and is expected to make another cut in October or November, which would place the key rate at a record low of 1.25 percent. The benchmark three-year government bond yielded 1.168 percent by the end of August, compared with 1.817 percent in late 2018.

Yet the bullish market has stayed off limits to smaller corporate names. The last offering from small-scale corporate issuers was the 10 billion won issue in December 2018. The market was unfriendly to small companies throughout last year with total issues at 130 billion won, less than 0.4 percent of the total corporate issues in 2018.

Amid the lackluster stock market, smaller companies had little choice but to turn to traditional lenders for new funding. As of late July, their outstanding bank loans reached 699 trillion won, up 29.6 trillion won from late 2018.

In contrast, large companies showed a decline in their bank loans, with their outstanding loan balance coming to 154.3 trillion won in late July, down 400 billion won from late last year. The balance has fluctuated throughout this year but has been on a downward trend since hitting 157.7 trillion won in May.

By Chung Seok-hwan and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]